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31 March 2017

E-commerce: The Logistics Industry

With the boom in e-commerce driving drastic changes to the traditional model of global trade, logistics arrangements, at all levels of the supply chain, also need to adjust to this new reality.

Traditional and E-commerce Logistics

Activities inside an e-commerce distribution centre (DC) are usually very different to those in a traditional DC, where workers generally pick large orders and prepare them for shipment via truckload carriers. Workers in an e-commerce DC, on the other hand, pick small orders and pack them for shipment to individual customers via parcel carriers – a pick-and-pack operation that is labour and technology intensive.

At the same time, the logistics-information system and the product-flow system have to be adapted accordingly in order to ensure a flexible and efficient distribution of products. The table below illustrates the key differences between traditional and e-commerce logistics.

Traditional Logistics

E-commerce Logistics

Orders/Demand

Predictable and stable

Seasonal, fragmented and fluctuating

Order Cycle

Weekly

In terms of hours & minutes

Customer

Business enterprises – a few

End-consumers – many

Customer Service

Reactive, rigid

Responsive, flexible

Replenishment

Scheduled

Real-time

Distribution Model

Supply-driven

Demand-driven

Shipment Type

Bulk

Smaller shipments

Destinations

Concentrated

Widespread

Total Solutions by 3PL Providers

In the e-commerce realm, merchants tend to concentrate on their core competencies and outsource non-core functions to third parties, particularly for logistics functions that require specialised systems, a well-established network and infrastructure, and specific expertise.

Third-party logistics (3PL) providers have extensive resource networks, which offer many advantages over in-house supply chains. By using a 3PL provider’s resource network, each step in the supply chain can be executed in the most efficient, cost effective way. 3PL providers can leverage their relationships to produce the fastest possible service, and negotiate volume discounts to reduce overheads. Choosing a 3PL provider allows e-commerce players to benefit from these resources, which are unavailable in-house.

Outsourcing logistics functions to a 3PL provider eliminates the need for e-commerce players to invest in warehouse space, information technology, transportation, and staff to execute the logistics functions, each of which is costly. 3PL providers enable online players to build a global logistics network with lower risk, while achieving faster time to market.

In many cases, 3PL providers’ DCs and warehouses are strategically located to allow for the quick shipping of goods to anywhere in the world. Using 3PL providers allows e-commerce players to utilise these resources in order to enter new markets and begin to grow. Moreover, 3PL providers tend to stay up to date with the latest developments in technology, manufacturing and logistics, as well as the industry’s best practices. Furthermore, 3PL software is capable of advanced reporting, inventory management, and monitoring of the entire logistics process.

Another advantage of using a 3PL provider is the ability to scale space, labour and transportation according to the season. Online merchants can utilise more space and resources during high seasons, but do not have to maintain the infrastructure during low seasons.

Opportunities for Logistics Players

E-commerce reshapes the management of the whole supply chain, promising great opportunities for the global logistics industry. However, logistics companies must adapt to new and challenging e-commerce trends. Despite these demands, a plethora of new opportunities is available to Hong Kong logistics companies that are well equipped with proper systems and expertise to deliver high performance.

Facilitating Strong Growth of E-commerce Trade

While the room for expansion of traditional exports in Hong Kong is limited, the proliferation of e-commerce in many sectors opens another window of opportunity for the logistics industry. Indeed, the explosion of international e-commerce is driving suppliers to revisit their sourcing and distribution decisions, creating an urgency to reshape the whole supply chain. Key logistics processes are becoming more customer-centric, with key data being shared by supply chain partners.

When it comes to selling products via online platforms, small and medium enterprises (SMEs) in Hong Kong continue to face obstacles posed by the fragmentation of orders and the complexity of global logistics. 3PL providers with an international network, and innovative and customer-friendly solutions, can help SMEs narrow the gap with e-commerce giants.

Fast delivery and real-time parcel tracking have become essential in maintaining export competitiveness in the digital era. However, mounting online sales that stretch in-house resources have forced online merchants to look for e-logistics solutions tailored to the fast pace of e-commerce. 3PL providers with a streamlined infrastructure and high scalability to handle inventory, fulfilment, shipping and returns are in great demand as e-commerce continues to grow at a rapid rate.

When e-commerce businesses succeed, they often take off faster than those with traditional business models, and the need for logistics services can suddenly become overwhelming. Efficiency of goods delivery is one of the main components that have a bearing on customer satisfaction in the competitive e-commerce arena. For the overseas markets they serve, logistics service providers must expand their domestic distribution capabilities to offer efficient last-mile delivery. Those that are committed to building distribution networks and delivery fleets are more likely to gain a firm foothold and achieve high margins in tomorrow’s logistics industry.

Digital Revolutions in Retail

The retail industry is undergoing a structural change amid the proliferation of e-commerce – increasingly applying an online-to-offline model to their businesses. The new mandate for omni-retailers includes customer-centricity, digital fluency, and complete agility. Rather than developing their own logistics networks and delivery systems, relying on a 3PL provider’s extensive distribution and delivery networks might help retailers that are currently behind the curve to rapidly establish an online presence.

Brick-and-mortar retailers tend not to have supply chains that are as nimble or flexible as those of the online pure-plays, but they can leverage their physical stores to close that gap. In many cases, it is a big challenge for conventional retailers to create a seamless, but still cost-effective, logistics management system for both in-store and online operations. However, with customers’ purchases dispersed across multiple channels, it becomes increasingly difficult for even the most successful brick-and-mortar brands to ignore the digital arena. They need to improve product availability and delivery by integrating production, distribution and inventory across online, mobile and in-store channels.

Unfortunately, most of the inventory and warehouse management systems of conventional retailers and their information-technology infrastructures have been built around a brick-and-mortar model. Incorporating a logistics system that is equally optimised for inventory management, shipping and delivery required for an e-commerce operation is a difficult task for them. Logistics players can play a role in closing the gap.

Application of Big Data

E-commerce players are seeing an increasing amount of opportunities to collaborate with their 3PL providers using big data to create a responsive supply chain with end-to-end visibility, enabling real-time communications among supply chain stakeholders such as procurement and order management.

Big-data analytics makes sense of critical data to help businesses understand their operations and market. It helps businesses make accurate projections of the demand for a certain kind of product so they can meet the needs of their customers over a sustained period of time.

Improved productivity, competitiveness and efficiency are among the benefits of big-data analytics within the supply chain and logistics management. Gaining information from unstructured customer data can generate useful insights into optimising the integration of manufacturing, planning and fulfilment processes.

Sending items towards a destination area even before a customer places an order, for instance, could be a viable solution for fast-moving items in dense areas. Such anticipatory shipments can be triggered based on big-data analytics. Therefore, there is great potential for the use of big data by 3PL providers not just in predicting demand, but also in helping to shape and change it as they move forward.

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